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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI LALIET KUMAR
M/s. Virpur Strips Pvt. Ltd., Dagliya& Co. The Income Tax Officer, L Block, Unity Buildings, Vs. Ward – 12 (2), J.C. Road, Bangalore. Bangalore. PAN: AANPG8663Q APPELLANT RESPONDENT Assessee by : Shri Muralidhar V., Advocate Revenue by : Smt. SriNandini Das, Addl. CIT (DR) Date of hearing : 17.09.2018 Date of Pronouncement : 12.11.2018 O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT(A), Mysore dated 29.09.2017 for Assessment Year 2005-06.
The grounds raised
by the assessee are as under. “1. The order of the learned Commissioner of income tax is opposed to law and facts of the case.
2. The learned commissioner of income tax (Appeals) has erred in sustaining the b Demand raised by the assessing officer U/s 115 O for dividend U/s 2(22) (e).
3. The learned commissioner of income tax (Appeals) and the Assessing Officer has erred in applying the provisions of section 115 O for deed dividend (section 2(22)(e)). Whereas section 115 O is applicable to such dividend which are declared and distributed by the company to the share holders.
4. The learned commissioner of income tax (Appeals) has erred in overlooking the fact that the divided demand U/s 22(e) is taxable and the dividend referred to is section 115 O are exempted U/s 10(34)
5. The commissioner of income tax (Appeals) has erred in ignoring the facts that in his own order in the case of share holders Sri. Uday Gokani the said deemed dividend has been considered taxable. Taking the same amount again amounts to double taxation
6. With these and such other grounds that may be urged at the time of hearing the Appellant prays relief sought for.”
Page 2 of 5 3. It was submitted by ld. AR of assessee that provisions of section 115O of IT Act are not applicable in the present case. In this regard ,he drawn our attention to the explanation below section 115Q of IT Act which is under Chapter XII-D of IT Act and pointed out that this explanation has been omitted w.e.f. 01.04.2018 by the Finance Act, 2018 and therefore, in the present year, this explanation was very much on the statute book and as per this explanation, for the purpose of this chapter i.e. Chapter XII-D, the expression “dividend” shall have the same meaning as is given to “dividend” in clause (22) of section 2 but shall not include sub-clause (e) thereof. He submitted that as per this explanation, dividend as per section 2 (22) (e) cannot be considered as dividend for the purpose of chapter XII-D of IT Act and therefore, section 115O cannot be made applicable in the present case. The ld. DR of revenue supported the orders of authorities below.
We have considered the rival submissions. We find that this issue was decided by CIT(A) as per Para 3 of his order which is reproduced hereinbelow for ready reference. “3. The appellant is a closely held domestic company which filed the return of income for the A.Y. 2005-06 on 31.10.2005, admitting total income of Rs. 55,579/-. During the course of the scrutiny assessment proceedings, the A.O. determined that the appellant advanced a sum of Rs.6,00,000/- to Shri Uday Gokani, who held more than ten percent of beneficial shareholding in the appellant, which is a closely held domestic company. Besides, the appellant also had accumulated profits of Rs.1,25,026/- as on 01.4.2004, i.e. at the beginning of the previous year relevant to A.Y. 2005-06 and therefore to that extent the Assessing Officer held the commensurate part of the aforesaid loan amount as deemed dividend assessable in the hands of Shri Uday Gokani, by invoking the provisions of section 2(22) (e) of the Act. Simultaneously, the Assessing Officer also invoked the provisions of sec. 115O of the Act and assessed the commensurate value of Rs.1,25,026/- towards dividend distribution tax in the hands of the appellant company. This is the only issue disputed in this appeal in the 4 grounds of appeal preferred. For the appellate hearing, Shri Muralidharan, FCA appeared on behalf of the appellant, duly authorized and sought time for furnishing a written submission, which was granted. The written submission made on behalf of the appellant dated 26.09.2017 was taken on record and after due consideration thereof, the appeal is decided on merits, as follows:The 1st, 3rd and 4th grounds are general in nature and therefore are not separately adjudicated. The 2nd ground of appeal stated that the Assessing Officer erred in treating the purchase consideration as loan, which in turn was deemed as dividend u/s 2(22)(e) of the Act. In the written Page 3 of 5 submission made on behalf of the appellant, it was submitted that dividend distribution tax u/s 115O of the Act is levied only on such dividends that were declared and distributed or paid. This ground was considered on the admitted facts as per law. During the course of the appellate proceedings, no credible and verifiable documentary evidence was adduced to prove that the amount of Rs.6,00,000/- advanced by the appellant to Shri Uday Gokani represented any purchase consideration as claimed. Therefore, with regard to the legal aspects pertaining to the provisions of sec. 115O of the Act, on the admitted facts of the appellant, it is held that the deemed dividends that were separately assessed in the hands of Shri Uday Gokani represent accumulated profits of the appellant that were distributed and therefore such distribution of accumulated profits is covered by the provisions of sec. 115O of the Act for the purpose of quantifying the dividend distribution tax assessed in the hands of the appellant. Accordingly, the 2nd ground of appeal
is dismissed.”
5. From the above Para of the order of CIT(A), it comes out that only basis for invoking the provisions of section 115 O in the present case is this that in the hands of Shri Uday Gokani, who held more than 10% of beneficial shareholding of the present assessee company, which is a closely held domestic company, addition was made on account of deemed dividend u/s. 2(22)(e) of IT Act of Rs. 1,25,026/- and to that extent, it was held by the AO and CIT(A) in the case of the present assessee that section 115 O is also applicable. For the sake of ready reference, we reproduce the provisions of section 115 O along with its proviso inserted by Finance Act, 2018 w.e.f. 01.04.2018. The same are as under. “Tax on distributed profits of domestic companies. 115-O. (1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of fifteen per cent: 99[Provided that in respect of dividend referred to in sub-clause (e) of clause (22) of section 2, this sub-section shall have effect as if for the words "fifteen per cent", the words "thirty per cent" had been substituted.]
6. From the provisions of the proviso to section 115 O inserted by Finance Act, 2018 w.e.f. 01.04.2018, it comes out that it has been specified that from 01.04.2018, the dividend distribution tax should be paid by assessee @ 30% instead of 15% if dividend is an amount of dividend referred to in section 2 (22) (e). In our understanding, as per this proviso to section 115O inserted by the Page 4 of 5 Finance Act, 2018 w.e.f. 01.04.2018, rate of dividend distribution tax to be paid by an assessee in respect of deemed dividend u/s. 2 (22)(e) of the Act has been prescribed at 30% although for other types of dividends, it was prescribed @ 15%. In our understanding, it does not mean that dividend tax is payable @ 15% prior to 01.04.2018 and @ 30% from 01.04.2018 in respect of deemed dividend u/s. 2(22)(e) of IT Act. Now we examine the provisions of explanation below section 115Q which has been omitted by the Finance Act, 2018 w.e.f. 01.04.2018. The same is as under. 'Explanation. -For the purposes of this Chapter, the expression "dividends" shall have the same meaning as is given to "dividend" in clause (22) of section 2 but shall not include sub-clause (e) thereof.'”
7. We find that as per this explanation below section 115Q of IT Act, deemed dividend as per section 2 (22)(e) of IT Act cannot be considered as dividend under chapter XII-D of IT Act and section 115O is under Chapter XII-D of IT Act. Therefore for the purpose of section 115O also, deemed dividend as per section 2 (22)(e) cannot be considered as divided for the purpose of levy of tax on distributed profits and the proviso below sub section (1) of section 115O is w.e.f. 01.04.2018 as per which Dividend Distribution Tax on deemed divided u/s. 2(22)(e) is leviable @ 30% as against 15% for other type of dividend. But for any assessment year before Assessment Year 2018-19, deemed dividend u/s. 2(22)(e) cannot be considered as a dividend u/s. 115 O because as per explanation below section 115Q of IT Act, it has been specified that for the purpose of chapter XII-D of IT Act, such deemed dividend u/s. 2(22)(e) shall not be considered as dividend for the purpose of this chapter i.e. chapter XII-D of IT Act. Hence we hold that in the present case, the action by the AO and CIT(A) is not sustainable in holding that deemed dividend u/s. 2(22)(e) in the hands of the share holders of the present assessee company has to be considered as dividend in the present case u/s. 115O of IT Act. This issue is decided in favour of the assessee.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on the date mentioned on the caption page.